Will the US Dollar Strengthen Amid Trump's Tariff Escalations?

Will the US Dollar Strengthen Amid Trump's Tariff Escalations?

Thursday, July 10 – The US Dollar (USD) continues to trade with a neutral short-term bias despite rising tariff tensions introduced by President Donald Trump. Markets remain cautious as they await key data like US CPI and further developments in global trade talks.

Brazil Tariffs Spark Local Market Reaction

Trump’s surprise announcement of a 50% tariff on Brazilian goods led to a significant selloff in the Brazilian Real (BRL). The move is speculated to be politically charged, possibly tied to legal issues surrounding former President Jair Bolsonaro. With the US maintaining a trade surplus with Brazil, further negotiations may become complex and politically sensitive.

“This is less about global USD impact for now and more about targeted local market pressure,” note analysts.

USD Market Focus Shifts to CPI and Fed Cues

Despite heightened trade risks, the US Dollar Index (DXY) has remained relatively calm. Investors are reluctant to shift positioning until US CPI data is released and more clarity emerges on potential trade negotiations ahead of the August 1 tariff implementation deadline.

“The USD is still a spectator,” analysts note. “But the bar to ignore these tariffs will drop as we approach August.”

What Could Move the USD?

The path to higher average tariffs—potentially reaching 20% from the current 14%—could have varying impacts:

• Gradual, sector-specific tariffs may support the USD by increasing inflation expectations and delaying Fed cuts.
• Aggressive or sudden hikes (“Liberation Day”-style moves) may hurt the USD due to heightened global uncertainty.

The latest FOMC minutes revealed an increasingly dovish Fed stance, with officials like Waller and Bowman softening their policy outlook, adding further complexity to USD projections.

Bottom Line

With the USD holding steady for now, all eyes turn to upcoming CPI data, Fed commentary, and developments in US trade talks. A delayed or disorderly approach to tariff implementation may create pressure points for the USD in either direction.